This month, we are continuing our work on assisting Clients who are having their property compulsorily acquired. Government bodies including Transport for NSW have increased their push to finalise their compulsory acquisition of both existing premises and leasehold interests, impacting many individual owners and businesses operating on these premises.
One common issue which we see in the acquisition of leasehold interests is the way the compensation amount is structured. While most owners and tenants are only interested in the monetary value of the compensation, the way the compensation is structured can have significant differences in the overall tax treatment of the receipt and ultimately, how much compensation ends up in the clients hands.
For example, if a business has their leasehold interest compulsorily acquired, and the compensation amount is left as a lump sum, there is a risk that the amount could be treated as a compensation for the extinguishment of a right to compensation, which would not allow the business to access rollover relief under Division 124-M. Income tax assessment act 1997. This could effectively reduce the total compensation amount received by as much as 30%.
These issues are very complex and the best approach for each individual will ultimately depend upon what outcomes they are seeking to achieve. If you are subject to compulsory acquisition, it is important you get assistance as early as possible to ensure your interests are protected.
Contact our Tax Consulting experts
If you have any questions about the above article, please contact our Tax Consulting experts:
B.COM, LLB, LLM, M.TAX, CTA
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